Changes urged to ease communities' pension burden

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State Auditor General Eugene DePasquale on Wednesday said pension problems facing cities, boroughs and townships threaten not only retirees but taxpayers who could take a hit in the coming years as pensions increasingly drag down municipal budgets.

Speaking at a news conference alongside Pittsburgh Mayor Bill Peduto, Mr. DePasquale called on legislators in Harrisburg and Gov. Tom Corbett to enact changes that could ease the burden on municipalities.

"This is clearly a Pennsylvania problem and it's not going away and it needs the action of the General Assembly ... and the governor," he said.

Mr. DePasquale also released a report Wednesday examining the 573 municipalities across the state whose pension funds have been declared "distressed." In all, he calculated they fall $6.7 billion short of being fully funded and many are at risk of not providing full benefits to retirees. The shortfalls could even push some communities into bankruptcy, he said.

In 2015, a change in the way unfunded liabilities are accounted for could worsen the financial picture for communities, making it more expensive for them to borrow money.

"It will be an anchor on everything [communities] want to do," Mr. DePasquale said, from capital projects to economic development.

Mr. Peduto joined Mr. DePasquale to call for changes and said the pension problems urgently need to be addressed. As of the end of last year, Pittsburgh's combined pension funds were 64 percent funded. Three years ago, the city narrowly avoided a state takeover of its fund with a plan to divert parking assets to fund the pension.

"Like a leaky roof, the longer we wait to tackle this issue, the bigger it'll become," Mr. Peduto said. Among the things Mr. Peduto and Mr. DePasquale called for: altering the state funding formula to give additional aid to "distressed" pension funds and consolidating administration of pensions -- but not the funds themselves -- to reduce overhead costs. They are also advocating for anti-spiking provisions that would prohibit those near the end of their careers from padding their pension with overtime.

One bill -- sponsored by state Rep. Seth Grove, R-York -- working its way through the Legislature would compel Act 600 pension funds to switch to a "cash balance" system, where employees would contribute 4 percent of their income into an account matched by the employer. Any interest above a certain threshold would go toward unfunded pension liabilities.

Moriah Balingit: First Published February 26, 2014 12:45 PM

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